Ways to Enhance Private Benefits Through Improvements in the Human Capital

Abstract

This paper explores the link between improvements in human capital and individuals' private benefits.  The paper builds its foundations upon Adam Smith's Circular Flow Model explaining the contribution of workers to a given production. In order to link skill level with wages, it draws heavily from Acemoglu and  Autor's conceptualization of human capital as a measure of skill. To emphasize the importance of an individual worker's skill, Kremer's O-ring model of production is discussed. Through an analysis of employment status and earnings data across groups with different education attainment, the paper postulates that higher educational attainment corresponds to increased earnings. Conversely, a distinction is drawn between between higher wages and the status of employment. Considering this distinction, the paper highlights three possible policies to augment individuals' human capital and thereby increase private benefits.